Steel Prices Could Rise If Foreign Charges Stick

October 15, 1992|by JONATHAN P. HICKS, The New York Times

The flood of trade litigation undertaken by the nation's largest steelmakers against foreign steel producers is certain to have a profound impact on the American companies, besides keeping their lawyers busy for months. Analysts say the complaints, when resolved, will significantly help steel companies in the United States gain price increases.

In a battery of complaints, the nation's biggest steel companies have charged that foreign companies are selling steel in the United States at unfairly low prices. The government, analysts contend, is likely to side with the American producers and begin assessing duties on steel brought into the United States from countries that are found to be judged as dumping subsidized steel.

"If most of the trade cases proceed, I expect prices to go up by as much as 10 percent," said John Jacobson, president of Jacobson & Associated, a Philadelphia-based steel consulting firm. "The availability of imported products has kept prices below what they would have been otherwise. If you take that away, you're going to see upward movement in prices, and that's the objective of big steel companies.

For American steelmakers, who are selling many products at prices lower than those of two years ago, the prospect of higher steel prices is particularly cheery. Most big steel companies reported huge losses for the first half and are expected to suffer deep deficits for the entire year.

Cold-rolled steel, for example, which is used in everything from automobiles and appliances to construction, sells for about $420 a ton, compared with an average price of $540 three years ago. Structural steel, used widely in high-rise construction and bridges, costs about $180 a ton, half its price two years ago.

Steelmakers are hardly waiting for the impact of the trade litigation to take effect, since decisions on the most significant disputes might not be reached until the spring. Two large companies, USX's steel division and the LTV Corp., said last week that they would raise prices, beginning next year.

The question is whether the price increases will take hold. Some analysts contend that only with economic improvement will those price increases remain firm. "They do have a chance with this proposed price increase," Jacobson said. "With the prospect of some economic recovery coupled with the prospect of the impact of the trade cases, they have an opportunity to see price increases."

Even if these price increases hold, there is no shortage of doubters about how long they will benefit the large companies. Many people in the industry contend that the gains by major producers might be short-lived, even if the higher prices cause the level of imported steel to recede. Indeed, there are several repercussions to the trade litigation that could add to the problems of the domestic industry.

For one thing, while higher steel prices may lead to profits for the major producers, they are also likely to spur more smaller steel companies, known as mini-mills, to begin making products that compete more directly with big steel companies.

Those products, principally the sheet steel that goes into automobiles and appliances, are now the domain of the large companies, including USX, Bethlehem Steel and LTV. Mini-mill producers typically make steel from scrap and produce lower-quality products with smaller work forces that receive lower wages. But in recent years, Nucor, the largest of the mini-mills, has begun producing small amounts of sheet steel at a new plant.

Jacobson and other analysts said they expected several mini-mills to move aggressively into the flat-rolled market, which is more lucrative, adding that the prospect of higher prices would probably help them make that decision.

James Todd, chairman of the Birmingham Steel Corp., a mini-mill steel producer based in Birmingham, Ala., said his company had been considering building mills that would produce sheet steel for automobiles and appliances but added that the prospect of high prices had not necessarily been a factor in the company's analysis.

"We are very much committed to evaluating the flat-rolled market and we will probably conclude that we will want to get into that market," Todd said. "I fully expect some modest price increase."

There is also the issue of how foreign shipments to the United States will be affected by the pending litigation. Charles A. Bradford, a steel analyst with UBS Securities, said he expected foreign steel producers to intensify their shipments to the United States in anticipation of the government's imposing penalties at a later time. "The dumping litigation is probably harmful to the industry in the United States," Bradford said.

"The foreign steel companies expect a negotiated political settlement, like the American government imposing some sort of quota," he added. "So, for the meantime, they want as high a level of shipments as possible in the United States. For the next few months, there will be more steel coming in than might be the case normally."